Social Security debate 2006...

[True Federalist (진정한 연방 주의자)]

David, I love how you seemingly randomly choose the numbers that present your case in the best possible light.  First of all, whlie you've had the good luck of not needing to collect on Social Security's disability benefits, you're including the portion of what was paid in for them as part of your retirement benefits.  You need to either separate out that portion (difficult since it's lumped in with the OASDI) or compare it with a private annuity that would begin payment if you were to become disabled or if you reach returement age.  Secondly, you chose to start receving benefits at age 62, which reduces your benefits by 25%, compared to age 66 when you would get full benefits.  (Which would be better depends on how sick you are, but if you make it to age 80, you'd break even and life expectancy for a somone who's already reached 62 is well over age 80 these days.)  You're also neglecting the fact that Social Security benefits are automatically hedged against inflation, which your CD's are not.

I'll grant that a private program would still come out ahead of Social Security, if you had the discipline to invest the money instead of spending it, but the differences aren't as dramatic as you make them out to be given your consistent slanting of the numbers to make Social Security look worse than it is.  Until proponents of Social Security reform start using real comparisons instead of slanted ones that cause doubters to distrust their math, privatization will be a no go.  If anything they'll need to slant the numbers slightly in Social Security's favor and still be able to show that people would do better with their reform proposals if they expect them to fly politically.

[True Federalist (진정한 연방 주의자)]

You're still neglecting that a porton of your OASDI contributions paid for disability insurance that you were fortunate enough to never use and you're still cherry-picking your numbers.  That average CD rate you quote includes a number of years with high inflation that would erode the value of your CD's, and are also probably for taxable interest as well.  You're also assuming that your CD's or other investments will never go in default, so apparently you're comfortable with the government backing your retirement as long as it does so with the FDIC instead of the OASDIF despite the fact that it's promises are just paper as well.  Oh, and let's not forget the risk of bankruptcy taking a large chunk of those savings you're planning on if you should ever run into that unfortunate condition.

To make it an honest comparison you have to account for the value of the risk assumption that Social Security provides.  Your numbers are not doing that and any numbers that do not do so are bogus.  You also make the mistake of assuming that the optimal choice for a single individual is to maximize expected value over all incomes.  Let me veer into hypotheticals to show what I mean.

Suppose I gave you at age 65 a choice between having a secure $200,000 at retirement or you can choose from one of three cases. Case 1 has $1, Case 2 has $200,000, and Case 3 has $1,000,000.  Now I ask you, is the fact that the expected value of choosing from the three cases is $200,000 higher than the sure thing worth the risk that you would end up with zilch for retirement?  Obviously different people have different risk tolerances, and one could fault the government for not allowing people to make that choice, but the fact is that the removal of risk (we can argue separately how much is a perceived rather than an actual removal) increases the value of Social Security when compared to riskier options if one looks only at the expected value as you are stubbornly doing.  If everyone felt the best choice was to do as you argue and always maximize expected value, irrespective of the degree of risk that you would end up with less than a desired minimum value, then Deal or No Deal would be the boringest game show ever devised (save for the ladies) as every contestant would refuse every deal.

Average expected value is not the measure people use, nor should it be the one they use when judging the worth of various retirement options.